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How should the market transition from EONIA to the €STR?

The working group on euro risk-free rates – which recommended replacing the euro overnight index average (EONIA) with the euro short-term rate (€STR) – is assisting the market in the smooth transition to the €STR before EONIA is discontinued on 3 January 2022.

The €STR, the new risk-free rate

In September 2018 the working group on euro risk-free rates recommended the €STR as the new risk-free rate and replacement rate for EONIA.

To support this recommendation, the working group conducted a public consultation to gather feedback on its assessment of candidate euro risk-free rates.

Transition path from EONIA to the €STR

In March 2019 the working group published recommendations on the path to follow to transition from EONIA to the €STR.

To support these recommendations, the working group called on market participants to provide feedback on a report analysing different transition paths.

Taking into account the broad market support for the working group’s recommendations of 14 March on the transition path from EONIA to the €STR, the European Money Markets Institute, which administers EONIA, modified EONIA’s methodology to become the €STR plus a fixed spread of 8.5 basis points from the first publication date of the €STR (2 October 2019) until the discontinuation of EONIA (3 January 2020). The purpose of this change was to give market participants sufficient time to transition to the €STR.

Once the transition path was defined and broadly accepted by market participants, the working group analysed its impact from an operational and legal standpoint, with the outcome reflected in several documents which include recommendations.

EONIA to €STR legal action plan

In July 2019 the working group published a set of recommendations on how to address the legal implications for new and legacy contracts referencing EONIA.

To support the recommendations on the EONIA to €STR Legal Action Plan, the working group on euro risk-free rates conducted a public consultation to gather market feedback.

Operational and valuation impact

In August 2019 the working group published a report on the impact of the transition from EONIA to the €STR on cash and derivatives products. The report provides market participants with recommendations from an operational and valuation perspective.

Risk management implications

In October 2019 the working group published a report on the risk management implications of the transition from EONIA to the €STR and the introduction of €STR-based fallbacks for EURIBOR. The report focuses mainly on the risk management implications for banks but also touches on additional challenges facing the asset management and insurance sectors.

Financial accounting implications

In November 2019 the working group published a report on the financial accounting implications of the transition from EONIA to the €STR and the introduction of €STR-based fallbacks for EURIBOR.

€STR fallback arrangements

In November 2019 the working group published a report on fallback arrangements for users of the €STR.

Transfer of EONIA markets’ liquidity to the €STR

In February 2020 the working group published a report to supplement that on the impact of the transition from EONIA to the €STR on cash and derivatives products published in August 2019. It includes additional recommendations for the smooth transfer of EONIA’s liquidity to the €STR.

Swaptions impact

In June 2020, the working group issued a recommendation for swaption contracts affected by the CCP discounting transition to the €STR.

The decision to issue a recommendation was informed by a public consultation carried out to gather market feedback.